Saturday, December 12, 2009

I have not seen a single cogent explanation for why uncertainty about climate change implies inaction is the optimal policy

Via Brad Delong, Mark Kleiman tells us that "If anyone tries to tell you that uncertainty about climate change is a reason for inaction, he’s either a fool or a scoundrel. Probably a bit of both."

That may be a little strong.  But if there is a cogent explanation for why uncertainty means we should do nothing, I have no idea what it may be.

Brad Delong is a more precise.  He writes:
There is one set of circumstances in which uncertainty is a reason for inaction: (a) the measures you would take would be expensive, (b) the measures you would take will be irreversible, and (c) you will get a lot of new information soon to help you judge the situation better.
That set of circumstances does not apply here.
I agree.  Because the one uncertainty-related rationale for doing nothing is an option value--the value of waiting to learn more about the best course of action.  Option values are generally very small.  They are especially small right now because (a) the amount of new information we're likely to obtain will be minimal and take a long time to obtain; (b) that new information is unlikely to change the optimal course of action by very much; and (c) any reasonable course of action is easily reversible or changeable.  Any one of these puts the option value at approximately zero.

In all other ways, uncertainty increases the rationale for action, mainly because the downside is far worse if we do nothing than if we do something reasonably aggressive.

Update:  I should note that there may be non-negligible option values but these go the other way: they provide a reason for action rather than inaction.  This is because inaction is a decision to keep putting the same amount of CO2 in the atmosphere, and this decision has very uncertain costs and benefits and is largely irreversible.  That means there is some value to *not* emitting CO2 until we learn more about the costs and benefits.  While these option values are almost surely larger than the option values associated with inaction, they are still very small given we are unlikely to resolve remaining uncertainties for a very long time.

5 comments:

  1. agreed that there is value in not emitting co2 until more is learned, etc. However, I don't believe that the value justifies the cost.

    a) the measures proposed to tackle climate change would be very expensive (not only monetarily but also politically in redistributing wealth and power away from developed countries)

    b)granted, continuing to emit CO2 is quite irreversible (at least with current technology), but I would postulate that removing climate change mitigation policies would be much more irreversible than their proponents might claim. It would surely provide huge revenues to the government (with taxes) or provide new forms of wealth and markets (cap and trade) to powerful industry who in turn influence politics, as well as gov't revenue (if allocated rather than auctioned)..there will be much vested interest (business, environmentalists, anit-capitalists who have seized the global warming cause, etc)to make it politically difficult to end such programs.

    c)If we have accumulated enough info in the past ten years to push the pendalum in favor of climate change policy, why is it not possible to accumulate that much or more over the next ten years that could change the consensus?

    I believe this provides some merit for inaction, especially in light of the fact that as expensive and life changing as proposed measures to address climate change are, it seems to be agreed by most that the impact would still be relatively minimal in mitigating climate change

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  2. Jacaob,

    I must disagree with you on all counts.

    a) The costs are tiny, a little over a postage stamp a day per household in the U.S. and possibly much less. And there are benefits besides reducing CO2 that stem from those costs.

    Redistributing wealth and power from developed to developing countries is a bad thing? If that happens I think it would be wonderful--wealth inequality is one of our planet's greatest challenges. But how is this supposed to happen?

    b)The way permit allocations are split, they fall almost proportionately with costs, at least as prescribed under Waxman Markey. So reversing the policy would not be painful to most constituents--quite the opposite. The biggest losers would be beneficiaries of research dollars, which government has had no trouble cutting drastically (to social detriment) in the past. If it were shown that SOX and NOX where not really harmful pollutants do you think there would be a difficult time reversing clean air policy because of vested interests in the SOX permit market? Similarly, if solid evidence came out that we really didn't have a problem, I do expect the policy would end very fast.

    c) I think we had enough information 30 years ago to enact climate policy, at least from an optimal economic viewpoint. It's too bad we did nothing because if we had done something intelligent the problem may have been all taken care of by now. I digress...

    In the unlikely event that we do collect new information that says climate change is actually a good thing, or that it really isn't happening because of "X counterbalancing factor", then we change the policy at that time.

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  3. I believe that recent implications are that the US will contribute roughly 8 billion dollars to helping developing countries deal with climate change (correct me if the number is wrong). Divided by US population (350m??) that is over 22.85 dollars per citizen in direct transfers. Obama's economists put the multiplier on government spending at roughly $1.50 while Mankiw suggests a dollar tax cut generates $3. (This is an oppportunity cost of an additional 4-8 billion dollars) This is a pittence in comparison to the costs paid for higher fuel prices, higher electricity prices, higher food prices, and lost jobs associated with higher input costs, all of which is associated with adressing climate change.

    2nd, while I respect your opinion that you believe redistribution of wealth from developed countries to developing is good, I, and MANY others would not agree with you. Yes, wealth discrepancies are a challenge but redistribution of wealth is arguably not a sustainable solution, and climate change should not be used as a launching platform for redistributive measures (though I grant that in a global trading system with allocations between multiple regions and countries there may be efficieny gains in such redistribution). Also, I believe that while based off of NOX and SOX policies such as an SO2 market, CO2 measures are largely incomparible in their effect on our lives and the vested interests of industry as EVERY aspect of our lives effects/is effected by CO2 emissions.

    Lastly, I do not understand your argument for (c). The science seems mixed and questionable now, much less thirty years ago. As an economist you use and understand models. Firms such as Goldman, Lehman, etc had some of the best mathameticians and statisticians in the world yet we've seen their models were inaccurate.

    I am the first to say I don't know if climate change is occuring, how drastic it is or may be, or what measures may be able to prevent it. The subject of an email floating around right now, as well as other articles is that global warming is not a scientific debate. It has been hijacked by politics and taken on the form of religion.

    Cheers

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  4. Jacob
    there is something disingenuous about saying "I don't know if climate change is occuring...". Of course it is, everyone who goes outdoors over the last 20 years sees it. Here in colorado, gardening has gone from zone 4 to zone 5; birders see their favorites migrate north earlier than in the past; the snow on the mountains melts earlier; pictures show sea ice is dramatically smaller. etc etc etc etc etc. I mean, really. be serious. now, i guess it is possible that all the natural scientists are wrong and Sarah Palin is right, and that it really isn't anthropogenic. but to pretend to be agnostic and open minded just isn't believable. i can see no honest reason to say that you don't know climate change is occuring. Is there ANY evidence that would convince you?

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  5. Jacob,

    There is little argument within the scientific community that the Earth is warming, b) more CO2 (and other gases such as methane) leads to warming, c) the increase in CO2 (and other gases) is due to human activities. Most of the scientists who dissent from the general view (such as Lindzen) accept these three points, but argue that other effects are more important (water vapor, sensitivity values etc.) and so the increase in CO2 is unlikely to raise temperatures to the extent that the general community predicts. They do not comment on the increase in the acidity of the ocean, which is a potentially a very large problem. The open ocean contributes up to half the yearly production of oxygen, which is rather important for you and I.

    You can test the decrease in pH with increased CO2 in your own kitchen. You can use red cabbage to make an acid-base indicator. Then either use a straw to blow into a glass of water, or add yeast and sugar. You should easily see that the CO2 you are exhaling, or that the yeast produce change the pH of the water. This will (probably) negatively affect the phytoplankton that sequester carbon dioxide and make oxygen in the open ocean and is quite likely to decrease the efficiency of the biological pump that enables the oxygen to escape into the atmosphere where we can use it. Wikipedia has (at present) a good article on the biological pump.


    The economic models used by goldman etc. were statistical models that (among other problems) did not vary their underlying assumptions. That is, they assumed that returns valid for one type of mortgage were valid for other types of mortgages.

    The models used for AGW are often physical models that parameterize different aspects of the global system.

    These model types are not really comparable. While there may be some who see global warming as a religion, from my experience, within the scientific community, the majority of us (from libertarianish to leftich types) see AGW as a problem that we very much hope we are wrong about.

    -giovanni da procida

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